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Trading Void or Just an Algo?

in Career Paths

I walked into our trading room recently only to see one of our traders leaning back in his chair reading Trader magazine. It was the middle of the trading day.

“Trading void? Do you need something to do?” I was referring to the low volume trading days we’ve been witnessing.

“I’ve got the algos working. I could go high-touch and f*ck everything up, if you want.”

“No, that’s OK. Keep up the good work.”

Smartass trader. I suppose I had that one coming, though.

The trading landscape certainly has changed over the past 10 years. Historically, trading was accomplished using brokers or middlemen of some kind. Buy side traders who wanted to buy 100K shares of stock XYZ would contact sell side traders and indicate their interest in stock XYZ. The sell side trader would seek out a seller of stock XYZ and make a trade.

The process is not unlike buying and selling houses where a real estate agent acts as the middleman bringing buyers and sellers together. This process is still in place today, but it’s role is diminishing. Today, the brokers that are the most valuable to the buy side are the ones that commit capital to complete a trade (i.e., the trader takes the stock onto his own books and then seeks to sell it later).

Advancements in technology have led to more and more trading being done electronically. In electronic trading, the broker is no longer needed. An electronic platform takes the place of the middleman and matches buyers with sellers electronically. This is where algorithmic trading comes into the equation as traders use the algos to optimize their trading in the electronic platform and reduce execution costs.

Like almost anything tech, this advancement has brought out the geeks. The opportunity has been created for math geeks and computer programmers to work on Wall Street. Take a look at some of the requirements I pulled from recent job postings:

“PhD in Mathematics”
“C++ Developers”
“Advanced Degree in Mathematics, Statistics, Engineering, or Physics”
“Familiarity with R, Matlab or S-plus”
“Strong programming skills in C++ in a Linux environment”

Don’t have any of those skills? Don’t worry, neither do I. The world of Wall Street is not going to be completely turned over to the quants anytime soon, so my fellow Finance majors don’t need to worry.

However, if you have a math, engineering, or computer science background and are interested in getting a job on Wall Street, the opportunities available have never been better than they are today.

{ 3 comments… read them below or add one }

Sal

Definetely finance majors will continue to dominate Wall Street,but what do you think about trading?Is there any chance for people with finance degrees and some quantitative skills (but far from math Phd or C++ developers) to become traders?

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LBS - Mike

You just described the average trader: finance + quant skills. The new computer-driven, algo and HFT trading that I’m talking about is the growth area, but it still makes up a minority of the trading jobs out there today.

We still need smart people to run the machines, at least until Skynet becomes self-aware …

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Cristian

I have always watned to trade forex online and have done a lot of reading including attended a short course. Now I’m looking for a genuine online forex system to use. Please share what you actually have tried out and found profitable.P/S Please don’t share what you have not tried out yourself, please.

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